This is why black industrialisation is a slow process
Everyone agrees black participation and localisation are necessary. It’s the pace of transition that’s the problem, combined with the practical aspect of long product lifecycles
Attempts to increase black participation in the SA motor industry are long overdue. But the government should not expect rapid changes in the current ownership profile, says Dave Coffey, president of the National Association of Automotive Component & Allied Manufacturers (Naacam).
The department of trade & industry (DTI) has placed transformation and increased local sourcing of automotive components at the heart of future industry policy. Officials say it is inexcusable that out of hundreds of suppliers dealing directly with vehicle manufacturers, only about 20 are black-owned. The proportion is a little better up the supply chain, among subcomponent and service providers, but still nothing to be proud of.
Coffey, MD of the Shatterprufe autoglass company, says vehicle and components companies are trying to bring black companies into the industry. Toyota SA has instructed each of its suppliers to develop at least one black operator this year. Volkswagen SA has a project to directly identify black suppliers. Other motor companies have their own strategies.
What they are all finding is that there is not a deep pool of candidates. "For a long time the pressures that now exist from both a societal and empowerment scorecard perspective were not as pressing," says Coffey. Some potential candidates have no experience in the motor industry. They supply other sectors of the economy with products which empowerment headhunters hope can be adapted for automotive needs.
The automotive supply chain competitiveness initiative, a joint venture between industry, government and labour, has identified 56 black-owned manufacturers in the SA automotive supply chain. "This is a huge problem," says Coffey. "It’s just too few."
He adds: "The reality is that black industrialisation is a slow process."
One solution is for white-owned companies to sell all or part of their operations to black shareholders. This has happened in some instances but it’s not a popular idea. Multinational vehicle manufacturers have rejected a government proposal that they cede stakes in their SA subsidiaries to local black interests to improve their BEE status. Instead they propose creating a R3.5bn venture capital fund to support development of black suppliers.
Trade & industry director-general Lionel October says the government has accepted the idea in principle. But if motor companies can find a way around the empowerment obstacle, should other auto sectors be given the same opportunity?
Coffey says some multinational components companies have begun talks on selling part of their SA business. "If the vehicle manufacturers agree on a venture capital fund model with the DTI, the same model and parameters need to be available to multinational suppliers."
Motor companies hope their R3.5bn "equity equivalent" will win them the BEE points they need to move from empowerment level eight to level four — the minimum the government has hinted companies will need to access investment and production incentives from 2021.
There is no such requirement under the 2013-2020 automotive production & development programme but the DTI says it may come in for the next policy period, to 2035.
The other big challenge facing the SA motor industry is localisation. Average local content (calculated as a vehicle’s ex-factory invoice price minus the cost of imported parts) among the seven major vehicle manufacturers is below 40%. The DTI wants this up to 60% by 2035.
Naacam director Renai Moothilal says the increase is good for the industry after years of "suboptimal local supplier usage" but that it must go hand-in-hand with increased vehicle production.
Another 2035 target is to double annual production from 600,000 to 1.2-million.
Numbers alone, though, won’t do the trick. Skills development at supplier level is also important, says Moothilal. He adds: "Suppliers need to invest in new technologies to offer a wider basket of components locally. If there is incentive to invest in high value-added technologies and processes, the 60% level can be achieved."
Nico Vermeulen, director of the National Association of Automobile Manufacturers of SA, agrees that any localisation must make economic sense. But there’s another reason why none of this — localisation or black industrialisation — can be hurried.
Sourcing changes usually happen at the time of model introductions. Most vehicle lifecycles are at least seven years, sometimes 10, and motor companies are reluctant to tamper midstream.
"There’s not a lot companies can do if they are three or four years into product lifecycles," he says. "You can do small things but not wholesale. We need patience."